Business World

Friday 23 March 2018

Greek two-year yields rise over worries of delay in new bailout


Thomas Molloy

GREEK two-year bond yields rose on concerns the country's second bailout will be delayed as the rest of the eurozone squabble over a collateral deal.

"There are concerns that the second aid package won't go through," said Christoph Rieger, head of fixed-income strategy at Commerzbank in Frankfurt. "If Finland sticks to its word and demands collateral, we will be in a gridlock situation."

Finland wants Greece to provide extra collateral for loans -- an idea supported by Austria, the Netherlands, Slovakia and Slovenia. A senior member of the German government suggested earlier in the week that countries borrowing money should have to put up their gold reserves as collateral. The proposal was rejected by Chancellor Angela Merkel.

"If you can't even get an agreement on the terms of the bailout between the Finns and the Germans, then we'll just reach restructuring of the debt," said Kit Juckes, head of foreign-exchange research at Societe Generale.

Greek two-year yields soared more than four percentage points to a record 44.1pc during afternoon trading in London. The extraordinary surge left Greek yields towering over every other European country.

Yields on two-year Irish bonds climbed 23 basis points to 7.6pc while Portugal's yields were 35 basis points higher at 12pc.

The movement in the two-year bonds reflects the gradual decoupling of Irish 10-year bond yields from their Greek and Portuguese counterparts.

Bloomberg reported yesterday that Irish bonds are now delivering the best returns in the world as investors bet the country is the most likely of the euro area's bailed-out nations to grow itself out of trouble.

Irish securities handed investors a 14pc gain in the past three months, the highest among 26 government debt markets, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies (EFFAS).

Ireland's 10-year yield is at more than two percentage points below its three-month average, the biggest recovery among the countries that received aid.

Greek yields are 1.13 percentage points higher than their average since May 23, while those of Portugal are two basis points above their mean.

Irish 10-year yields slipped below 10pc this month for the first time since Portugal's April rescue. The Greek 10-year yield, which reached a record 18.39pc in July, hasn't been in single digits since October, while Portugal's 10-year borrowing cost has stayed at 10pc or above since June.


The profit investors have made on Irish bonds compares with losses of 2.2pc on Portuguese securities and 1.5pc on Greek debt, according to the EFFAS indexes. German bonds gained 6.1pc in the three months.

Ireland's funding costs are also declining relative to those of Germany, the euro area's largest economy, defying the surge in Greece's two-year yield.

Amid all the gloom, there was some good news for the Czech government after Standard & Poor's lifted its rating on the country's debt two notches. The Czech koruna strengthened against the euro and stocks extended gains as S&P lifted the country's long-term foreign- currency debt to AA-- from A.

The move was prompted by a change in S&P's sovereign-ratings criteria that puts more weight on the "political and economic profile" of central governments.

S&P said: "The economy is characterised by low levels of foreign borrowing, a deposit-funded banking sector with minimal lending in foreign currency, and a largely independent central bank that has kept both consumer-price inflation and interest rates at low levels."

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